Happy Holidays from Congress’s failed supercommittee! The political pain we find ourselves in just days before Christmas was supposed to be alleviated by the bipartisan group appointed last summer to work out a large compromise on a variety of important fiscal policies: among them, the soon-to-expire payroll tax cut, extended unemployment benefits and the periodic Medicare “doc-fix.” When the supercommitte failed miserably right before Thanksgiving, they assured us of this current impasse.
The House of Representatives refuses to even vote on the bipartisan bill the Senate passed last week aimed at tackling those left-undone issues. The effects of this latest deadlock include slimmer paychecks for American workers in January, a cut-off in assistance for long-term unemployed and a 27% pay cut to Medicare providers.
But although the short-term pain will be immense, this could be a substantive turning point for the do-nothing Congress and Obama’s presidency.
How We Got Here
Let’s quickly review the events that have led to this bizarre place in history, where the most conservative House members are refusing to pass a significant tax cut, right before Christmas and a presidential election year.
Barack Obama was elected by a significant majority of Americans in 2008, right as Wall Street was imploding, home values were plummeting and unemployment was rising. With majorities in both the House and the Senate, the Democrats were able to pass, among other things, a $700 billion stimulus bill, health care reform and financial reform. While Americans generally agreed with the goals of these legislative packages, they quickly became terrified of the additional debt the country was accumulating to pay for them.
With the economy showing little signs of improvement, that fear of “leaving the bill to our children and grandchildren,” plus the sense that government was intruding more into our personal lives, created the perfect environment for the rise of the Tea Party. That political movement aims to cut federal spending, loosen regulations and lower taxes. On a wave of anti-Obama sentiment in 2010, the Tea Party ushered in a hyper-conservative group of freshmen representatives and delivered the House to the GOP and the speakership to John Boehner (Ohio).
Obama was appropriately humbled, admitting that he had taken a “shellacking.” However, last year at this time (during Congress’s lame-duck session), he was able to cut payroll taxes for a year and extend long-term unemployment benefits. He was able to extract this extra stimulus by agreeing to extend of all of the Bush tax cuts for two years, something he was loath to do.
Beginning in January 2011, with a newly divided Congress, the Obama administration shifted the policy discussion from “stimulus” to “deficit reduction.” It sensed that the American public had delivered a strong message in November, that voters believed (regardless of any evidence to support it) that deficit reduction was the key to climbing out of our economic hole.
That dynamic ended in the catastrophic debt-ceiling fight over the summer, which delivered an extension of the debt ceiling, massive spending cuts, the failed supercommittee and a downgrade of the nation’s AAA debt rating.
How to Create Jobs, Without Spending?
After this deficit drama subsided, Obama “pivoted” again to focus on jobs. His “jobs bill,” released in early September, was crafted to win bipartisan support: It had a blend of tax cuts and infrastructure spending. But given the now extremely polarized political environment in the wake of the debt-ceiling fight and the coming election year, the bill became little more than material to be used in 2012 ad campaigns.
How to create jobs without spending money — adding to the deficit without raising taxes — has been the trick for Obama and his fellow Democrats. The administration has consistently advocated allowing the tax rate on households that make over $250,000 to revert (rise) to Clinton-era levels. But some Democrats don’t agree that these families are among the “wealthy” who should pay more. So, shortly after proposing the jobs bill, Obama suggested raising taxes on millionaires. Although that provoked outrage among conservatives who screamed “class warfare,” Harry Reid (D-Nev.) jumped on it and suggested paying for the payroll tax cut, doc-fix and unemployment extension by imposing a surtax on incomes over $1 million.
As “negotiations” progressed last week, Reid dropped the millionaires tax idea as a concession to the GOP. House Speaker Boehner directed Reid and Senate Minority Leader Mitch McConnell (R-Kent.) to work out a deal. The “compromise” agreed to by Reid and McConnell was far from perfect: It basically punted the issue for two months, to buy more time to figure out a way to pay for the desired year-long extension. Subpar as it was, the measure passed by an overwhelming majority of senators (90%), who then packed up and left town for the holidays.
Now the only things standing in the way of maintaining fiscal continuity for Americans in January are the House Republicans. They’re suddenly incensed that the payroll tax cut isn’t for the entire year and would rather have it scrapped altogether than pass the Senate’s bill. Boehner would not even allow the bill to come to a vote, arguing instead for a conference committee. He knows this is nearly impossible, since the Senate is long gone.
Why There’s Hope
Although it’s always darkest before the dawn, the sun may be about to rise on the Obama administration. By all accounts, the House Republicans have finally blown it. An array of GOP senators have taken to the airwaves blasting them, the editorial page of The Wall Street Journal has excoriated them and yet they show no signs of blinking.
So what happens now? My bet is that the payroll tax cut will indeed expire, along with payments to Medicare providers and the unemployed. When Congress returns in January, it will hammer out a longer-term deal that will provide these benefits retroactively to Jan. 1.
While this will be a major headache and irritation for everyone, let’s hope it’s a teachable moment for these freshmen legislators. They claim they were elected to change the way Washington works. What they will realize over the next couple of weeks is how the country works: The American public does not care about the legislators’ egos or the details of policy fights. No one wants a smaller paycheck greeting them in January, seniors want to see their doctors and the unemployed need continued assistance.
If the public turns on the GOP during 2012, Obama has a real chance to pass some good legislation — because it’s an election year, not despite it. He’s an incumbent running unopposed and thus has the ultimate bully pulpit. Last year, Obama ate his humble pie, if the GOP gets a slice of its own, it may be able to compromise on something. Let’s hope so.